The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 6893 March 21, 1996 RETIREMENT: Investing public retirement assets Section 20d of 1965 PA 314 authorizes an investment fiduciary to invest a limited percentage of public retirement system assets in stocks not listed on a national securities exchange or on the national association of security dealers automated quotation system. Honorable Joe Conroy State Senator The Capitol Lansing, Michigan Honorable John D. Cherry, Jr. State Senator The Capitol Lansing, Michigan Honorable Floyd Clack State Representative The Capitol Lansing, Michigan Honorable Deborah L. Cherry State Representative The Capitol Lansing, Michigan You have asked if section 20d of 1965 PA 314, MCL 38.1132 et seq; MSA 3.981(112) et seq, authorizes an investment fiduciary to invest public retirement system assets in stocks not listed on a national securities exchange or on the national association of security dealers automated quotation system. This office has been informed that the investment fiduciary of a public retirement system is considering the purchase of securities in companies whose stock may not be listed on a national securities exchange or on the national association of securities dealers automated quotation (NASDAQ) system. The public retirement system in question has assets of approximately $300,000,000. 1965 PA 314 codifies the investment authority of public retirement systems and, under section 13(1), supersedes any authority previously granted to a system under any other law of this state. Section 14 of the same statute grants an investment fiduciary the authority to invest in stock subject to certain conditions and provides, in pertinent part: (1) An investment fiduciary may invest not more than 60% of a system's assets in stock. An investment fiduciary shall not invest in more than 5% of the outstanding stock of any 1 corporation, nor invest more than 5% of a system's assets in the stock of any 1 corporation, unless otherwise provided in this act. (2) The stock shall be registered on a national securities exchange regulated under title I of the securities exchange act of 1934, 15 U.S.C. 78a to 78d, 78e to 78-1, 78m to 78-o, 78p to 78dd-1, 78ee to 78hh, and 78kk, or on the national association of securities dealers automated quotation system. (Emphasis added) Section 20d of 1965 PA 314, the so-called "basket clause," provides: (1) An investment fiduciary of a system having assets of more than $10,000,000.00 but less than $250,000,000.00 may invest not more than 5% of the system's assets in investments not otherwise qualified under this act, whether the investments are similar or dissimilar to those specified in this act. (2) An investment fiduciary of a system having assets of $250,000,000.00 or more may invest not more than 10% of the system's assets in investments described in subsection (1). (3) An investment fiduciary of a system who is the state treasurer may invest not more than 15% of the system's assets in investments described in subsection (1). (4) If an investment described in subsection (1) is subsequently determined to be permitted under another section of this act, then the investment shall no longer be included under this section. (5) This section shall not be used to exceed a percentage of total assets limitation for an investment provided in any other section of this act. (Emphasis added) OAG, 1989-1990, No 6597, p 198, 202-203 (August 24, 1989), concluded that the term "qualified investment" means those investments specifically authorized by 1965 PA 314. It also concluded that "investments not otherwise qualified," as used in section 20d(1) of the act, are those types of investments that the Legislature has not otherwise specifically authorized in 1965 PA 314. Section 20d(1) of 1965 PA 314 states that "investments not otherwise qualified" may be "similar or dissimilar" to those specified in the statute. A plain reading of section 20d(1) indicates that the Legislature intended that the "basket clause" be available for a wide range of investments. Other than the requirement that these investments be those that are not specifically authorized by the act, the Legislature imposed only two other qualifications in 1965 PA 314. The first limits the amount of "basket clause" investments to a percentage of a public retirement system's assets, based upon the amount of assets of a given retirement system. Section 20d(1), (2), and (3). The second precludes a public retirement system from using the "basket clause" to exceed a percentage of total assets limitation for an investment authorized in any other section of the act. Section 20d(5). For example, section 14 limits investments in stock to 60% of a system's assets. Once that threshold is met, the "basket clause" cannot be used for investments in stock that would cause the percentage of assets invested in stock to exceed 60%. These two limitations are the only limitations the Legislature intended, it being a well-established rule of legislative construction that the expression of one thing implies the exclusion of others not expressed. Taylor v Michigan Public Utilities Comm, 217 Mich 400, 402-403; 186 NW 485 (1922); Sebewaing Industries Inc v Village of Sebewaing, 337 Mich 530, 548; 60 NW2d 444 (1953). It should be noted that investments under the "basket clause" are also subject to considerations of prudence. The prudence requirements for investment fiduciaries of public retirement systems are set forth in section 13(3) of 1965 PA 314: (3) An investment fiduciary shall discharge his or her duties solely in the interest of the participants and the beneficiaries, and shall: (a) Act with the same care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a similar capacity and familiar with those matters would use in the conduct of a similar enterprise with similar aims. (b) Act with due regard for the management, reputation, and stability of the issuer and the character of the particular investments being considered. (c) Make investments for the exclusive purposes of providing benefits to participants and participants' beneficiaries, and of defraying reasonable expenses of investing the assets of the system. (d) Give appropriate consideration to those facts and circumstances that the investment fiduciary knows or should know are relevant to the particular investment or investment course of action involved, including the role the investment or investment course of action plays in that portion of the system's investments for which the investment fiduciary has responsibility; and shall act accordingly. For purposes of this subdivision, "appropriate consideration" shall include, but is not necessarily limited to: a determination by the investment fiduciary that a particular investment or investment course of action is reasonable designed, as part of the investments of the system, to further the purposes of the system, taking into consideration the risk of loss and the opportunity for gain or other return associated with the investment or investment course of action; and consideration of the following factors as they relate to the investment or investment course of action: (i) The diversification of the investments of the system. (ii) The liquidity and current return of the investments of the system relative to the anticipated cash flow requirements of the system. (iii) The projected return of the investments of the system relative to the funding objectives of the system. Stocks which are not listed on a national securities exchange or on the national association of securities dealers automatic quotation system may be difficult to sell. It is imperative that the investment fiduciary weigh the ability to liquidate the investment in order to comply with requirements set forth in section 13(3)(d)(ii). A plain reading of section 14 of 1965 PA 314 indicates that an investment fiduciary is authorized to invest up to 60% of a system's assets in stocks if, among other things, the stock is listed on a national securities exchange or on the NASDAQ system. An investment in stock not so listed would be an investment "not otherwise qualified" by the act. Thus, so long as a public retirement system meets the asset limitations of section 20d and has not exceeded the 60% limitation for stock investments under section 14, the investment fiduciary of that system may invest in a stock not listed on a national securities exchange or the NASDAQ system. This interpretation is confirmed by the legislative history of 1982 PA 55, which added section 20d to 1965 PA 314. House Legislative Analysis, HB 4272, March 5, 1981; December 7, 1981; and November 10, 1982. It is my opinion, therefore, that section 20d of 1965 PA 314 authorizes an investment fiduciary to invest a limited percentage of public retirement system assets in stocks not listed on a national securities exchange or on the national association of securities dealers automated quotation system. Frank J. Kelley Attorney General